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The Employee Retirement Income Security Act, 29 U.S.C.S. § 1001 et seq., permits a person denied benefits under an employee benefit plan to challenge that denial in federal court. 29 U.S.C.S. § 1132(a)(1)(B). Often the entity that administers the plan, such as an employer or an insurance company, both determines whether an employee is eligible for benefits and pays benefits out of its own pocket. This dual role creates a conflict of interest. A reviewing court should consider that conflict as a factor in determining whether the plan administrator has abused its discretion in denying benefits. The significance of the factor will depend upon the circumstances of the particular case.
Petitioner Metropolitan Life Insurance Company (MetLife) is an administrator and the insurer of Sears, Roebuck & Company's long-term disability insurance plan, which is governed by the Employee Retirement Income Security Act of 1974 (ERISA). The plan gives MetLife (as administrator) discretionary authority to determine the validity of an employee's benefits claim and provides that MetLife (as insurer) will pay the claims. Respondent Wanda Glenn, a Sears employee, was granted an initial 24 months of benefits under the plan following a diagnosis of a heart disorder. MetLife encouraged her to apply for, and she began receiving, Social Security disability benefits based on an agency determination that she could do no work. But when MetLife itself had to determine whether she could work, in order to establish eligibility for extended plan benefits, it found her capable of doing sedentary work and denied her the benefits. Glenn sought federal-court review under ERISA, but the District Court denied relief. In reversing, the Sixth Circuit used a deferential standard of review and considered it a conflict of interest that MetLife both determined an employee's eligibility for benefits and paid the benefits out of its own pocket. Based on a combination of this conflict and other circumstances, it set aside MetLife's benefits denial.
Did a plan administrator that both evaluates and pays claims operate under a conflict of interest in making discretionary benefit determinations?
The Supreme Court found nothing improper in the Sixth Circuit's combination-of-factors method of review. The Court held that MetLife’s dual role created the "conflict of interest" referred to in Firestone. Such conflicts of interest were not restricted to employers because an employer's conflict might extend to its selection of an administrator. Further, ERISA imposed higher-than-marketplace standards on insurers. In considering how such conflict should be taken into account on judicial review of a discretionary benefit determination, the Court determined that Firestone meant what the word "factor" implied, namely, that a conflict was but one factor among many that a reviewing judge must take into account. The Court's elucidation of Firestone's standard did not consist of a detailed set of instructions.